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Weak manufacturing activity points to more policy easing

2017.02.15


Growth in China's manufacturing sector continued to moderate in November, raising pressure on the central bank to further ease its monetary policy.

Two gauges of factory activity -- an official one skewed toward large companies and a private one toward smaller ones -- both showed economic momentum was weak in November, adding to investor concern about a slowdown.

The official manufacturing purchasing manager's index (PMI) slipped to 50.3 in November from 50.8 in October, but remained above the 50-point mark that separates growth from contraction on a monthly basis, according to data released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing.

Another PMI reading from the HSBC, also released on Monday, stood at 50.0 in November after a 50.4 print in October.

Although the November PMI fell slightly, it remained above the boom-bust line, suggesting the manufacturing sector was generally expanding, NBS analyst Zhao Qinghe said.

The breakdown of the official PMI showed downward pressure on domestic demand increased while external demand decelerating, said Bob Liu, analyst at the China International Capital Corp.

Liu expects industrial output growth to slow from 7.7 percent in October to 7.4 percent in November while export growth will remain above 10 percent.

According to Liu, temporary factory shutdowns imposed in Beijing and neighboring regions in early November to ensure cleaner air during the APEC meeting helped aggravate the slowdown last month.

Most components of the official PMI dropped from one month earlier, with small enterprises showing the biggest drop.

Among the sub-indices, the production index posted at 52.5, down from October's 53.1.

The index of new orders slipped from October's 51.6 to 50.9 while that of new export orders fell to 48.4 in November from 49.9 in October.Employment sub-index declined from 48.4 in October to 48.2.

Judging from the PMI data, the main economic data due next week might be relatively weak, Liu said. "Monetary policy should be eased further, including cutting the reserve requirement ratio and further lowering benchmark interest rates."

Discouraged by unsteady exports, a property downturn and cooling investment growth, the Chinese economy grew at its slowest pace in the third quarter since the depths of the global financial crisis and is very likely to register its weakest annual growth in more than 10 years.

The country cut benchmark interest rates on Nov. 22 for the first time in more than two years in an effort to step up support for the economy.

Chang Jian, Barclays Chief China Economist, said the move will mainly help to reduce the debt burden, lower financial risks, support business sentiment and sustain private demand.

Chang expected the country's central bank to cut the benchmark interest rates twice in the first half of 2015, by 25 basis points each time, and lower the reserve requirement ratio three times.

 

Source:GlobalTimes


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